What channels are you used to? Do you watch sports or entertainment? Maybe you are trading forex hoping to upgrade your entertainment system so that you can watch even more channels! Good for you, but we aren’t talking about those kinds of channels at all. Sorry.
Just like trends, there are upward channels, downward channels, and sideways channels.
Want to create a channel? You have to use your trend lines. Here’s how you do it.
For example, in an ascending (up) channel – draw a parallel line at the same exact angle as the upward line, but move the line to the position of the most recent peak.
In a descending (down) channel – you guessed it – draw a parallel line at the same angle as the downward line, but this time move the line all the way to the most recent “valley”, or lowest point.
Now, where would you want to buy or sell?
This should be an easy answer for those who don’t even trade – you would want to potentially BUY in the lower part of the channel or trend line, and sell in the higher part of the channel or trend line.
Here’s the thing – you might like channels so much, that you start wanting to sell in a certain place. This might lead to you drawing channels that aren’t there. DON’T DO THIS! Remain unbiased when it comes to the market, and your bank account will thank you for it.
Both trend lines should ALWAYS be parallel to each other – otherwise the channel isn’t a real channel.
Just like trend, the three channels are identified this way:
An ascending channel means higher highs and higher lows.
A descending channel means lower highs and lower lows.
A horizontal channel means that it is ranging.